This week Ulf Sandqvist and I will be presenting a paper on the IR11.0 conference in Gothenburg. It’s the first time either of us will be presenting at that conference. But, plenty of interesting papers and people. Should be fun!

Ulf Sandqvist and Peter Zackariasson (2010). The Dematerialisation and Democratisation of Currencies: a historical description of currencies and how the physical has been replaced with the virtual. Internet Research 11.0, 21-23 October, Gothenburg Sweden.

Abstract:

Most of us who are participating in virtual worlds are familiar with the economics of these worlds. Selling and buying what we need in order to sustain out virtual presence is a part of the daily life. As participants, and sometimes as trolls or elves, money and barter has been ascribed a significant part of this. The result has been that we interact with virtual marketplaces, just as we interact with every other aspect of our virtual lives. As most of the actions in the real world are economised, the tendency to evaluate relationships and objects from an economic perspective, the threshold to adapt to a virtual market is quite low. Just like many other structures we find in the real world, economy seems to make sense to us and are many times taken for granted.

One might claim that in order to become successful in virtual worlds, especially in MMOG, one must become a good capitalist. If one cannot manage and increase the wealth it is impossible to improve ones equipment and it does not matter how good the skill is in using a dull sword. Thus economy and the understanding of this is not an optional extra, but an essential part that the participant has to learn and master.

The aim of this paper is to describe how currencies have been made a significant part of our virtual lives. This ‘cybercash’ has evolved both from the participants in these worlds (Dibbell 1999, Sinha 1998), and also from developers (Castronova 2002, 2005, Lehdonvirta 2009). Tracking the history of currencies one finds a diverse construction and use of this in trade, a development where the pendulum has shifted between entrepreneurial liberation and centralised control (Einzig 1996, Morgan 1965). At this point we can observe the dematerialization of currencies. We will argue that this dematerialization has the capability to democratise the market and relationships between agents on this, it can tilt the power balance from one centre of calculation (Callon 1998) to several centre of calculations.

Soon after these economic structures were in place virtual goods started to change owners by means of external structures, using real currencies as payment. The economy of virtual worlds was thus connected with the economy in the real world (Castronova 2002, 2005). Thus the capitalistic structures that in most nations were employed to secure wealth and happiness were adapted to the virtual which resulted in the birth of cybercapitalism (Author 2009).

Today this Real Money Trade (RMT), consisting of virtual goods, virtual currencies and services, is a rapid growing industry that is estimated to exceed $100 million (~73,3 million EUR) each year (Castronova 2006). There is even claims from the game industry that it is worth almost nine times that, $887 million (~642 million EUR) (Castronova 2005). Because of this marketplace many times dubious legal status this is not a business that is open, as professional markets in the real world, like the stock trade for example. Thus these estimates only give a rough idea about its impressive size.

There is no doubt that the RMT will continue to grow, both in size and in its content, or applications. The same cybercash might in the future be used to facilitate trade between different virtual worlds, or between a virtual world and the real world. But at this point both RMT and cybercash has a position as second order trade. The legal status has in many cases not been clarified, but more important there has yet to be established a practice on par with the trade activities that is conducted in the real world. It is these two phenomenon, RMT and cybercash, that is the focus of this paper.

Looking at cybercash as an extension of physical currencies this is in line with the dematerialization of currencies that always has been part of conceptualizing currencies. A currency is also a symbolic item that represents an agreed value in a community. As cybercash is gaining ground it does so outside of structures of physical currencies, as such it can form the basis for communities reinvent currencies.